OBG talks to Cesar Purisima, Secretary, Department of Finance

Interview: Cesar Purisima

How is the government looking to build on the Philippines’ recent investment rating upgrade and to move forward on its economic goals?

CESAR PURISIMA: The market actually rates the Philippines higher than our current credit rating would suggest. Our five-year rate on credit default swaps, currently at 83, is tighter than Thailand’s, which is at around 85, placing us two notches above investment rating.

Beyond the rating, our goal is to continue to transform the economy to consolidate the gains secured during the administration of President Benigno Aquino III. On the fiscal side, we want to create additional space for further investments in people and infrastructure. To do this, we need to increase our revenue effort to 16% from the current figure of 13%. In terms of infrastructure, we need to raise public spending to 5% of GDP to maximise the productive capacity of the country. Lastly, we need to continue to open up the economy by reviewing restrictions on foreign investment.

How do you rate the government’s strategy to raise revenue collection, as compared to previous years?

PURISIMA: Our strategy relies on increasing efficiency and improving compliance. For example, in the case of the Bureau of Customs, we have asked for monthly reports based on commodities instead of aggregates, which can be compared with previous years as well as outside sources of information. Therefore, we can monitor how much we collect per container to determine whether we receive our fair share. This can become our basis to evaluate the performance of Customs workers. If we focus on containerised cargo, we can increase average collection per container, currently at around P66,000 ($1590), to at least P200,000 ($4820).

At the Bureau of Internal Revenue, we are working on income tax from self-employed individuals, which accounted for only 6.5% of personal income tax collection, according to our most recent statistics. Although there are 1.8m self-employed people in the Philippines, only 400,000 filed income tax returns, paying an average of P33,000 ($795). This is very low given that many of them are white-collar workers with their own businesses. We would like to increase this sum to P200,000 ($4820) and raise the number of self-employed individuals filing income tax to 1.5m, generating between P200bn-300bn ($4.82bn-7.23bn) of revenue.

We are also monitoring performance at a district level, correlating data from various agencies, including the Professional Regulation Commission, where 2m professionals are listed, and the Land Transportation Office, where 8m vehicle owners are registered, in order to identify tax evaders. Another important area is estate taxes, where we collected P2.3bn ($55.4m) in 2012, up from an average yearly collection of P1bn ($24.1m) over the past decade. This is still too low given the value of properties that are assets in this country, and we expect to increase collection to P50bn ($1.21bn).

Which sectors are priorities in terms of expenditure and investment, whether domestic or foreign?

PURISIMA: As a result of higher market confidence, the Philippines’ share of interest payments has decreased from 30% to 16.6% of the budget. Less waste through corruption and zero-based budgeting have allowed us to maximise our limited resources and invest them in key areas such as infrastructure. We also have ambitious programmes to invest in our people, for example by implementing a universal health care system.

The thriving business process outsourcing sector has also brought benefits to many people, albeit mostly those who are already skilled. However, we must also be sure to focus on less skilled workers, by incentivising investment in the manufacturing sector.

Agriculture is also vital, as it employs a third of our workforce, but produces only 12% of output. To unlock this potential, we must invest in better supply chain infrastructure, focus on commodities where the Philippines enjoys a competitive advantage, rethink how we give farmers access to credit, and remain mindful of areas of the country that are prone to natural disasters.